7 September 2026 · 6 min read · Bruce Thomas
Almost every penalty we help clients deal with is automatic. No one at HMRC looked at the situation and decided to charge it — a deadline passed and the system issued it. That also means most of them are predictable, and a good number are appealable.
How the penalties build up
- A fixed penalty applies as soon as a return is filed even one day late
- Further penalties follow at three, six and twelve months, and the later ones can be based on the tax due rather than a flat amount
- Late payment carries separate penalties from late filing — filing on time does not protect you if the money is late
- Interest runs on unpaid tax from the due date, and it keeps running while an appeal is considered
- Companies House charges its own escalating penalties for late accounts, doubling if you were late the previous year too
Filing late is still better than not filing
Because several penalties are triggered by elapsed time and some are calculated on the tax outstanding, the cost of doing nothing rises far faster than the cost of filing an imperfect return and correcting it. If you are already late, getting the return in stops the clock on the largest charges.
What counts as a reasonable excuse
HMRC will cancel a penalty where there was a reasonable excuse and the failure was put right without unreasonable delay. Serious illness, a bereavement, a genuine service failure at HMRC's end, a fire or flood, or software failure at the point of filing are the categories that most often succeed.
What does not usually succeed: not having the money, relying on someone else to do it, finding the system difficult, or not knowing the deadline existed. The strength of an appeal comes from dates, evidence and promptness rather than from how reasonable the story sounds.
If you cannot pay
Late payment penalties can often be avoided by agreeing a Time to Pay arrangement with HMRC before the due date rather than after it. Interest still applies, but an agreed instalment plan is treated very differently from silence. Contact them early — the option narrows once enforcement starts.
Stopping it happening again
Nearly every repeat penalty traces back to records being pulled together in the last fortnight before a deadline. Monthly bookkeeping, a known filing date and a tax figure you have seen months in advance remove the problem entirely.
This article is general guidance for business owners in the UK and does not amount to advice for your particular circumstances. Tax rules change and the right answer depends on your figures — please take specific advice before acting.
